Government should exit Air India, says report

The government should sell its entire stake in Air India as any level of equity retention would raise concerns about the prospect of government interference after privatisation, a report said today.

It also said that foreign airlines should be allowed to bid for the stake in the loss-making national carrier.

In a brief report, aviation think tank CAPA India also said that cleaning up the airline's balance sheet would be the most important step.

To revive Air India, which has been in the red for long, the government has decided to go for its strategic disinvestment and the modalities are being worked out by a group of ministers.

The national carrier has a debt burden of more than Rs 50,000 crore.

"The government should exit Air India completely. Any level of equity retention will deter investors due to concerns about the prospect of continued government interference post privatisation," CAPA India said.

According to the report, the core divestment should consist of the airline operations only -- Air India, Air India Express and optionally Air India regional.

These operations should be sold along with aircraft- related debt and reasonable working capital loans, it added.

Air India Express is the low cost international arm of the flagship airline.

"Special business units such as MRO (Air India Engineering), catering (TajSATS), ground handling (both Air India Air Transport Services and AISATS) and Centaur Hotels should be sold off separately to raise capital that can be used to retire debt. "Property and other non-core assets should be placed in a separate special purpose vehicle," it added.

Noting that foreign airlines should be allowed to participate in the disinvestment process, the report said that would increase the number of interested bidders and the valuation.

"The domestic and international operations should be offered in one line, as there is significant value in the feed which they provide to each other. Air India is also part of a global system as a result of its membership of Star Alliance.

"Separation of domestic and international operations will result in reduced interest," it said.